Wednesday, 29 January 2014

How do you solve a problem like capitalism? Economic democracy versus the abolition of profit

In an
interview on this blog last
year, Hjalti Hrafn Hafthorsson of the Icelandic organisation Alda, put the case for an intrinsically
different kind of economy. Companies, he argued, should be run as
worker-controlled enterprises not as shareholder-owned entities managed by
small boards of directors. With decisions guided by what employees want, rather
than the legally prescribed imperative of maximising profit that determines
current corporate behaviour, outcomes would be radically altered. Wealth would
be more evenly distributed, companies would reflect what communities wanted and
monopolies less likely to be formed.

“I tend to believe,” Hafthorsson concluded,
“that if working people were voting on some of the decisions made by corporate
executives today many of those decisions would be overruled because people in
general have values that aren’t measured in dollars or pounds.”

Alda’s
vision of “economic democracy” is seen by many as a cure for the problems that
plague society - inequality, stalling wages, environmental degradation, the
dominance of large firms (in the energy ‘market’ for example) that exploit
their captive consumers and companies’ footloose relationship with the
communities that host them.

This means
not merely a different way of reaching economic decisions, but the death of the
shareholder. Workers, not wealthy investors or pension funds, would own as well
as govern firms. It has been argued that the wider community should be
represented on company boards, not just the workforce. Either way, what you have
is an economy ostensibly geared towards the public interest, not private
profit.

Taken
together with the burgeoning movement for a basic, unconditional income, you
can see the rudiments of an economy that values people, as opposed to things or
profit. An economy, in other words, that treats people not as means to an end -
economic survival and profit - but as ends in themselves, and gives them the
freedom, and material security, to decide what is right for them.

“The
difference, of course, is that we wouldn’t have capitalism anymore,” says
Hafthorsson. But are these really the ways to transcend capitalism, or will we
still be caught in its web?

There are
some who think escape not so easy. The American Marxist, Andrew Kliman, looks upon capitalism as a network
of relationships governed by immovable laws. You cannot simply “overrule”
decisions because you don’t like them. It doesn’t matter, in this view, who is in
charge or what their values are – whether they are money-grubbing psychopaths
obsessed with profitability, or managers elected by the workforce, concerned
above all else with the welfare of fellow employees and the effect of decisions on the
wider community. Kliman is adamant that:

“Directives will not break the laws of capitalist
production. The most important law is the determination of value by labor-time.
It compels an enterprise, whoever owns or 'controls' it, to minimize costs in
order to remain competitive, and therefore to lay off inefficient or
unnecessary workers, speed up production, have unsafe working conditions,
produce for profit instead of producing for need, and so on. If you are in a
capitalist system, you cannot just issue a directive to produce for need, or a
directive to refrain from laying off workers. Cutting costs is the key to
survival.”

The
disagreement as to what is and isn’t possible ultimately stems from contrasting
definitions as to what capitalism is. Alda’s “economic democracy” stance reflects
philosopher David Schweickart’s definition.
Capitalism take places in the familiar “market economy”, yes, but the decisive
characteristic, to Schweickart, is that it is based on wage labour. This means
the vast majority of people have to rent themselves to the small minority that
own companies, shops or offices in order gain the livelihood – the wages, salaries or fees – that enables
them to have a reasonable standard of life and not frequent food banks. Their
need of an income means they are compelled to subject themselves to
undemocratic rule at work and the baleful consequences of inequality, the
dominance of huge firms and a lack of concern of external effects on society
and the environment. The solution is to end the division between the elite that
owns “the means of production” and the millions of people one or two payslips
from bankruptcy. When workplaces are democratised, the argument runs, the
behavioural characteristic of firms will change and seemingly intractable
problems will become tractable. Values not “measured in dollars or pounds” would
predominate. But this is decidedly not about the abolition of profit or
competition. Profit will remain, it’s just that the people who receive it will
alter.

Another way
of describing this transformation is that it aims at the ‘democratisation of capital’.

However, to
Kliman, this is based on a fundamental misconception of what capitalism really
is. “Capital,” he writes, “is nothing other than value that is invested in
order to end up with more value, so the fact that products have value is part
and parcel of capitalism as such, no matter what its forms of property and
institutional structures may be.” You can turn the institutions - the
workplaces and corporations that overshadow our lives - upside down, you can
put the people, not the corporate executives in the saddle, and nothing
fundamental will change. Because any firm operating in a competitive economy
will be drawn, however unwillingly, into the “grow or die” mentality that
exists all around it, workers in a worker-controlled company will end up
exploiting themselves.

You need do
“do away” with capital, Kliman insists, and that requires doing away with
commodities and the production of commodities. Given that most people –
Marxists included – don’t think people should just live on the potatoes and
onions they have planted in the back garden, he must be referring to a special
quality in “commodities” that separate them from consumer goods. But more of
that shortly.

Kliman’s firm
belief is that, in a capitalist society, institutional forms don’t matter. However
hard they try not to, everyone has to swim with the current. In this, I think
he is partly right. Non-shareholder enterprises do, I believe, behave
differently, but not differently enough. In Britain, for example, you can see a
glaring disparity in the way consumers are treated. The traditional
shareholder-owned companies dominant in energy and water provision since
privatisation in the 1980s, have engaged in crass profiteering. Electricity
prices have shot up by 120% and gas prices by 190% in the last decade. Welsh Water, by contrast, which
has been run as a social enterprise without
shareholders since 2001, has reduced bills every year for seven years. The
nationalised Scottish Water, is into its fourth year of a price freeze. Railways
in the UK
paint a similar picture. Private train companies have, in the context of
burgeoning taxpayer subsidy, made an enormous return of 147% for every pound invested, but when the state is
inadvertently put in charge of a rail-line, the taxpayer subsidy miraculously drops. The British National
Health Service, in its heyday, exemplified the primacy of need over the bottom
line.

Gar
Alperovitz in America Beyond Capitalism,
argues that the price advantage displayed by municipally-owned electricity
utilities in the US “is due to the fact of public ownership itself; locally controlled public utilities often can be especially responsive to customers' needs and do not need to pay dividends to private shareholders.”

However,
all these instances occur in cases of non-competitive monopolies or without
direct competition for market share. When competing in a market against shareholder-owned
competitors, social or state-owned or worker-controlled enterprises have much
less freedom. The record of the famed worker cooperative corporation in
Mondragon in Northern Spain, illustrates both
how worker-run coops are an advance on the capitalist model, but also, in
important respects, ape it. In Mondragon, we have, not an isolated divergence
from capitalism, but Spain’s
seventh largest company. Mondragon comprises 256 businesses that generate $4.8
billion a year in manufacturing, retail and distribution. It boasts 43 schools,
one university and more than 80,000 employees.

As this
analysis demonstrates, in stark
contrast to the towering edifices of economic dictatorship and inequality that
surround us, Mondragon is a beacon of democracy and egalitarianism. It operates
on a one worker one vote basis, and each worker’s vote in the Mondragon general
assembly, controlling production, income distribution and the election of the
board, carries the same weight. The Mondragon CEO earns only nine times the
federation’s lowest paid employee. Economic downturns are not met with
automatic lay-offs. Mondragon members are more likely to vote for pay decreases
in order to spare unemployment.

“In
contrast to most capitalist companies, whereby the measure of a successful
company is almost always based on maximum profitability, the cooperative
approach offers an alternative that supports democracy through an egalitarian
voting system, while at the same time promoting job security for
worker-members, social justice and community responsibility,” say authors from
the Center for Social Epidemiology, of Mondragon.

But this is
not the whole story. While Mondragon embodies these undoubted advances, it has also
expanded into other countries – Mexico, Morocco, Egypt, Argentina, Thailand and
China, for example – in much the same
way that a capitalist company might and, significantly, its international
workforce have not been offered cooperative membership. Roughly a third of
Mondragon’s workers are not members of the coop. And, after trying in 1960s to
adopt alternative manufacturing processes, Mondragon now incorporates familiar
capitalist practices such as just in time inventory and shift work.

What this
indicates, I think, is that it is very difficult to make worker cooperatives
universal – to expand them without ensuring, at the same time, that a sizeable
chunk of the population remains outside them. And also that cooperatives will inevitably
respond to outside competition. There is no way to ensure that even a worker’s
coop that is an exemplar of internal democracy will not vote to gain an edge
through the introduction of ultra-competitive practices, thus compelling other
cooperatives to follow suit, to grow or die.

Kliman
would say that these inescapable flaws mean you have to “do away with”
capitalism and markets, or,
alternatively, that capitalism, the process of adding value through the sale of
products, inevitably entails markets and you cannot have one without the other.
That is what he means by commodities, the selling of products and the
reinvestment of the profit made through that sale, as opposed to the neutral
designation, ‘consumer goods’. But lesson of 20th history seems to indicate
that you can’t abolish capitalism and markets, without entering a nightmare realm
of central planning and total state domination. Kliman refers to the “horrors
of state-capitalism that called itself ‘communism’” so he clearly doesn’t want
to go back to that. He also says “we have to work out how we can have a modern
society that operates without the laws of capitalist production being in
control”. By “modern society” he seems to mean a society with a myriad of
consumer goods and conveniences but lacking the compulsion or necessity to
make a profit from these goods; to turn them into commodities. Is this an
impossible dream? Is economic democracy within some form of regulated market,
the best we can hope for? Can you really abolish capitalism? I would like to
consider these questions at some point when I have the time.

About Me

Capitalism is not beautiful, said John Maynard Keynes. It is not intelligent, it is not virtuous and it not just. “But when we wonder what to put in its place, we are extremely perplexed.”
This blog is about the ideologies that mask the ugliness and injustice beneath the surface. And how our perplexity might be diminished.
You can contact me at idealogically@gmail.com